Vulture funds - as defined by the
International Monetary Fund and Gordon Brown amongst others
- are companies which buy up the debt of poor nations
cheaply when it is about to be written off and then sue for
the full value of the debt plus interest - which might be
ten times what they paid for it.

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Vulture fund threat to third world

Meirion Jones BBC
Newsnight

On Thursday 15 February a high court judge in London
will rule whether a vulture fund can extract more than
$40m from Zambia for a debt which it bought for less
than $4m.

There are concerns that such funds are wiping out the
benefits which international debt relief was supposed to
bring to poor countries.

Martin Kalunga-Banda, Zambian presidential adviser
and a consultant to Oxfam told Newsnight, "That $40m is
equal to the value of all the debt relief we received
last year."

Vulture funds - as defined by the International
Monetary Fund and Gordon Brown amongst others - are
companies which buy up the debt of poor nations cheaply
when it is about to be written off and then sue for the
full value of the debt plus interest - which might be
ten times what they paid for it.

Mockery

Caroline Pearce from the Jubilee Debt campaign told
Newsnight it makes a mockery of all the work done by
governments to write off the debts of the poorest.

"Profiteering doesn't get any more cynical than this.
Zambia has been planning to spend the money released
from debt cancellation on much-needed nurses, teachers
and infrastructure: this is what debt cancellation is
intended for not to line the pockets of businessmen
based in rich countries."

Debt Advisory International (DAI) manages a number of
vulture funds which buy up the debts of highly indebted
poor countries cheaply and then sue for the original
value of the debt plus interest. Zambia - where the
average wage is just over a dollar a day - is one of the
highly indebted poor countries which the world's
governments agreed needed debt relief.

Tractors

In 1979 the Romanian government lent Zambia money to
buy Romanian tractors. Zambia was unable to keep up the
payments and in 1999 Romania and Zambia negotiated to
liquidate the debt for $3m.

Before the deal could be finalised one of DAI's
vulture funds stepped in and bought the debt from
Romania for less than $4m. They are now suing the
Zambian government for the original debt plus interest
which they calculate at over $40m and they expect to
win.

Like the other vulture funds DAI refuse to do
interviews but reporter Greg Palast caught up with the
company founder Michael Sheehan outside his home in
Virginia.

Greg Palast: "I just want to ask you Mr Sheehan - why
are you squeezing the poor nation of Zambia for $40
million - doesn't that make you a vulture? Michael
Sheehan: "No comment I'm in litigation. It's not my
debt." Greg Palast: Aren't you just profiteering from
the work of good people who are trying to save lives by
cutting the debt of these poor nations? Michael
Sheehan: Well there was a proposal for investment.
That's all I can talk about right now.

Five years ago Gordon Brown told the United Nations
that the vulture funds were perverse and immoral: "We
particularly condemn the perversity where Vulture Funds
purchase debt at a reduced price and make a profit from
suing the debtor country to recover the full amount owed
- a morally outrageous outcome". But the vulture funds
are still operating.

'We don't do interviews'

The London case is just one of many which are running
around the world.

Newsnight went to New York to try to interview Paul
Singer - the reclusive billionaire who virtually
invented vulture funds.

In 1996 his company they paid $11m for some
discounted Peruvian debt and then threatened to bankrupt
the country unless they paid $58m. They got their $58m.

Now they're suing Congo Brazzaville for $400m for a
debt they bought for $10m.

We didn't get our interview. His spokesman told us,
"We have nothing to hide; we just don't do interviews".

US courts

The vulture funds raise most of their money through
legal actions in US courts. Those actions against
foreign governments can be stayed by the word of the US
President and that is where lobbying and political
influence becomes important.

Debt Advisory International are very generous to
their lobbyists in Washington. They have been paying
$240,000 a year to the lobby firm Greenberg Traurig -
although recently they jumped ship to another firm after
Greenberg Traurig's top lobbyist was put in jail.

Paul Singer has more direct political connections. He
was the biggest donor to George Bush and the Republican
cause in New York City - giving $1.7m since Bush started
his first presidential campaign.

Rudi Guiliani is the favourite to be the next
Republican presidential candidate and a leaked memo from
his campaign shows that Paul Singer has pledged to raise
$15m for Guiliani's campaign.

Tactics

The vulture funds have teams of lawyers combing the
world for assets which can be seized to settle their
claims. There have also been claims of dubious tactics.

Back in Britain the Zambian case has seen much legal
discussion about allegations of bribery. The Zambian
legal team - led by William Blair QC - Tony Blair's
brother, has argued that a $2m bribe was offered to the
former Zambian President to make it easier for the
vulture funds to claim their money.

They showed the court an email disclosed in the
Zambia case saying that a payment to the "President's
favourite charity" had allowed them to do a more
favourable deal.

When we caught up with Michael Sheehan outside his
house in Virginia he told us it was not a bribe but
a charitable donation.

He told us, "We offered to donate debt to a low
income housing initiative which was a charitable
initiative which did end up building several
thousand houses" before adding "you're contorting
the facts, you're on my property and I would ask you
to step off".

The Jubilee Debt Campaign told Newsnight that
they are calling on Gordon Brown to turn his moral
outrage about vulture funds into action if he
becomes Prime Minister and change the law to make
the Zambian case the last to appear in a British
court.

Meirion Jones produced Greg Palast's
investigation into Vulture Funds

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